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Resolving the Sunk Cost Conflict

Advances in Management Accounting

ISBN: 978-1-78714-530-6, eISBN: 978-1-78714-529-0

Publication date: 3 July 2017



Compare and contrast how the accounting, organizational behavior and other literatures analyze sunk costs. Sunk costs form a key part of the decision-making component of the management accounting literature, which generally include previously incurred and unrecoverable costs. Management accountants believe, since current or future actions cannot change sunk costs, decision makers should ignore them. Thus, ongoing fixed costs or previously incurred sunk costs, while relevant for matters of accountability such as costing, income determination, and performance evaluation are irrelevant for most short- and long-term decisions. However, the organizational behavior literature indicates that sunk costs affect decision makers’ actions – especially their emotional attachments to the related project and the asymmetry of attitudes regarding the recognizing of losses and gains. Called the “sunk cost effect” or “sunk cost fallacy,” this conflict in sunk costs’ underlying nature reflects one element of incoherence in contemporary accounting discourse. We discuss this sunk cost conflict from an accounting and a philosophical perspective to denote some ambiguities that decision usefulness and accountability introduces into accounting discourse.


Review, summarize and analyze the above literatures


Managerial accountants can apply many lessons from the various literature sources.


We also show how differing opinions on how to treat sunk costs impact a firm’s decision-making process both economically and socially.




We appreciate the input from Barbara Apostolou (West Virginia University), Phil Beaulieu (University of Calgary), Natalie Churyk (Northern Illinois University), Melvin Houston (Attorney at Law), David Sinason (Northern Illinois University), Mark Riley (Northern Illinois University), Dave Stout (Youngstown State University), Greg Trompeter (University of Central Florida), and Jeff Wong (University of Nevada-Las Vegas) on earlier versions of this manuscript. We also thank Brian Leonard, Research Assistant, Wayne State University, for his excellent help with this manuscript.


Reinstein, A., Bayou, M.E., Williams, P.F. and Grayson, M.M. (2017), "Resolving the Sunk Cost Conflict", Advances in Management Accounting (Advances in Management Accounting, Vol. 28), Emerald Publishing Limited, Leeds, pp. 123-154.



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